China is reported to be the source of over 86% of counterfeits worldwide with a $396B impact on global companies. Whether you produce, sell or have nothing to do with China, China counterfeits should be on your radar. For those who have made attempts to fight counterfeits or infringers in China, you may be tired of playing the "whack-a-mole" game of endless Alibaba take-downs and raids of small Chinese factories in remote areas. So are we, which is why Quarles & Brady’s China Trademark duo employs different strategies that can yield more meaningful results. Join us to learn more.
2. Introduction
1. Issues: Counterfeiting and trademark squatting;
2. Suggestions:
a) Strategize brand protection on a global level; and
b) Utilize enforcement actions in China;
3. Format: Real case studies; and
4. Goal: Food for thought.
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3. Definitions (1/6)
• Intellectual Property Rights: trademarks, copyrights, patents, product designs, trade
secrets, know-hows, etc.
• Trademarks: words, names, symbols, tag lines, smells, sounds or colors used as a
source identifier in connection with goods or advertising and rendering services.
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ALL FOR FREEDOM.
FREEDOM FOR ALL..
4. Definitions (2/6)
• Counterfeiting: manufacturing, distributing and selling products/providing services
using a trademark which is "identical with, or substantially indistinguishable from"
(15 U.S.C. § 1127) a mark belonging to another, and usually counterfeiters
misrepresent themselves as rightful trademark owners.
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5. Definitions (3/6)
• Trademark Infringement: "any reproduction, counterfeit, copy, or colorable imitation"
of a registered trademark in connection with the sale, offering for sale, distribution, or
advertising of any goods or services on or in connection with which such use is likely to
cause confusion, or to cause mistake, or to deceive." 15 U.S.C. § 1114(1)(a)
[ NOT Applicable in China: "uses in commerce any word, term, name, symbol, or device, or any
combination thereof, or any false designation of origin, false or misleading description of fact, or false
or misleading representation of fact, which (A) is likely to cause confusion, or to cause mistake, or to
deceive... ...; (B) misrepresents...... 15 U.S.C. § 1125(a)(1) (SECTION 43 OF THE LANHAM ACT)
(protection of unregistered trademark) ]
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7. Definitions (5/6)
• Trademark Squatting: intentionally applying for a mark belonging to another in a
country where the second party does not currently hold a trademark registration. It
takes advantage ("disadvantage") of the "first-to-file" trademark system in that country.
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8. Definitions (6/6)
Types of Trademark Squatters and Patterns of Behavior:
1) Counterfeiters: profit through producing and selling products/rendering services
using famous brand names belonging to another.
2) Extortionists: motivated to make money – get in and get out, by:
selling back to brand owners or their competitors at an astronomical price; or
collecting license fees.
3) Business partners: often suppliers, distributors, and joint ventures, which profit
through "kidnapping" brand owners for leveraging rights to strong-arm brand owners
into business partnership or to continue business partnership.
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9. Counterfeiting - Overview
• Counterfeiting and the Role of China;
• Strategies for Planning Anti-counterfeiting Actions; and
• Enforcement Actions Available in China.
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13. Why Take Anti-Counterfeiting Actions?
• Counterfeits impact the bottom line:
Reduced sales;
Increase in product liability disputes and commercial litigation; and
Negative impact on company and global brand reputation.
• Provide support to business teams and business partners;
• Build up confidence of consumers/customers and business partners;
• Reduce the risks and costs of product liability disputes and commercial litigation;
• Offset some costs associated with brand protection actions; and
• Corporate Social Responsibility (CSR).
EUIPO's Webinar on Corporate Social Responsibility in The Fight against Counterfeiting and Piracy
(https://euipo.europa.eu/knowledge/mod/scorm/player.php?a=1977¤torg=&scoid=6017&sesskey=CrAozfiECv&display=popup&mode=normal ) 13
14. The Role of China in Global Counterfeiting
"Overall in 2015, China and Hong Kong together were the provenance of
86 % of global counterfeiting and USD 396.5 billion worth of counterfeit
goods and in combination, they form the largest ongoing threat to global IPR
integrity. "
According to "2017 Situation Report on Counterfeiting and Piracy in the European Union" issued by Europol and the European Union Intellectual
Property Office, full report available here: https://www.europol.europa.eu/publications-documents/2017-situation-report-counterfeiting-and-piracy-in-
european-union
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15. 15
Trademark Enforcement by China Customs in 2017
According to China Customs' annual report in 2017, the percentage of seized goods by category [by
quantity]:
Machine/equipment/automation/tools and parts: 25.56%;
Tobacco: 25.25%;
Cosmetics and Personal Care: 10.12%;
Other Industrial Goods:3.09%;
Shoes:4.91%.
• All Others: 23.79%
NOTE:
1. China Customs only has the ability to inspect
around 15% of all exported goods;
2. Seizure actions increased by 12.8% in 2017, which
was 22,000 cases in total;
3. Total value of seized goods: RMB 141.9 million
(around $ 20.65million);
4. Channels of Seized Goods: Cargo: 94.92% by sea
(quantity of goods);
5. Counterfeit machine/equipment/automation/tools
and parts have increased by 348% in 2017.
16. 16
Trademark Enforcement by U.S. Customs in 2017
According to the annual report from the U.S. Customs and Border Protection in 2017, the percentage of
seized goods by category [by quantity]:
• Cosmetics and Personal Care: 34%;
• Sunglasses: 31%;
• Consumer Electronics: 6%;
• Critical Components: 6%;
• Pharmaceuticals: 4%;
• Sporting Goods: 4%;
• Automotive/Aerospace: 3%;
• Lights/Lamps: 2%
• Perfumes:2%;
• All others: 8%.
NOTE:
1. China Customs only has the
ability to inspect around 15%
of all exported goods;
2. Seizure actions increased by
12% in 2017, which was 34,143
cases in total;
3. Total value of seized goods:
$1,206. 38 million;
4. Channels of Seized Goods:
Express: 60%
Mail: 29%
Cargo: 8%.
17. Are You A Victim and What Is Your Plan?
• Conduct a audit of unauthorized trademark applications and use to determine nature
and scope of problems:
• Review your trademark rights in China and other key and emerging markets;
• Set up goals and strategic priorities for a certain period of time; and
• Budget and plan for enforcement actions at a global level.
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18. Case Study 1: Cross-border Protection of Trade Dress
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Argentina China
2013 1. Equipment that infringed trade dress
flooded into the market.
2. Trade dress mark registered and
recorded with Argentina Customs.
1. Large suppliers of infringing equipment were found in
Argentina and identified as from China.
2. Trade dress mark pending.
3. China was not yet an important market.
2014 1. Infringing equipment detained by
Argentina Customs.
2. Preparation for civil actions and
permanent orders to stop importation
of infringing goods.
1. Trade dress mark registered but lack prior cases of
enforcement.
2. China was not yet an important market.
2015
-
2016
1. Civil actions filed and pending.
2. Continue to pressure
wholesalers/importers through customs
seizures.
1. China courts concluded a milestone civil litigation on trade
dress protection [judgements in China are generally not
binding precedents].
2. China was not yet an important market.
2017
-
2018
1. Favorable judgements issued.
2. Large wholesalers stopped importing
infringing equipment.
1. Business strategy prioritized Chinese market.
2. C&D letter: 9 out of 10 targets cooperated;
3. Successfully took down several hundred links of listings of
infringing equipment from various Alibaba's websites.
19. Case Study 2: If No Rights in China
• Client received a customer complaint about consistency of products sold in Taiwan and
discovered counterfeits;
• We helped the client to identify counterfeiter and uncovered counterfeiter had
obtained trademark registration through squatting;
• After analyzing client's business strategy and IP right portfolio, we advised against
enforcing against counterfeiter/squatter in China;
• Actions:
strengthening trademark rights in key markets, e.g., South American countries; and
taking actions to cut off distribution channels, i.e., in Hong Kong.
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20. What's Inside The Box-
Anti-Counterfeiting Actions in China
• Cease & Desist Letter
• Take-down Online Listings of Suspect Counterfeits
• Administrative Raids
• Civil Litigation
• Customs Detainment/Seizure
• Criminal Prosecution
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NOTE: They may look similar to enforcement
actions in the U.S., but can be vastly different!
21. Administrative Actions vs. Civil Litigation
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Administrative Actions Civil Litigation
Authorities 1. Intellectual Property Offices (IPOs) /Administration for
Industry and Commerce (AICs) (based on trademark
infringement)
2. Quality and Technical Supervision Bureaus (QTSBs)
(based on inferior quality of counterfeits)
1. Intellectual Property Courts
2. IP Chambers of Courts
3. Civil Chambers of Courts
Actions 1. Inspect and raid factories, stores and trade shows;
2. Seize and confiscate counterfeits/infringing goods and
manufacture equipment;
Adjudicate on IP disputes
Enforcement of judgement
Powers 1. Impose injunctions;
2. Suspend business operation;
3. Impose fines.
*NO monetary damage awarded to brand owners.
1. Preliminary injunction (rare);
2. Permanent injunction;
3. Confiscation of all infringing goods and equipment;
4. Order to apologize;
5. Damages (punitive damages are usually not supported).
Timeline Raid Action: 2 days to 1 week
Penalty Decision: 6 months to 1 year
12-24 months for the first instance
12-24 months for appeal
6-12 months for enforcement
Costs $5,000-8,000
(plus $3,000 -5,000 for preliminary investigation)
Costs: $ 50,000 – 80,000 covering 1st instance and appeal
$8,000-10,000 for enforcement
(plus additional costs and bonds for preliminary investigation;
preservation of evidence; preservation of assets; preliminary injunction)
No. of Cases 26,985 in 2017 3,441 in 2017
22. Customs Actions Focusing on Training
• Trademark Registration and Recordation are Musts;
• Educational materials and trainings are Essential:
37,236 trademarks have been registered with China Customs;
Large amount of exported goods and short period of inspection (1.5 hours per shipment); and
Help field officers to get familiar with your brands and products.
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23. Discrepancy of Customs Seizures
China (Export) U.S. (Import) E.U. (Import)
Machinery, automation, equipment and
parts: 25.56%
Cosmetics and Personal Care:
34%
Tobacco: 24%
Tobacco: 25.25% Sunglasses: 31% Toys: 17%
Cosmetics and Personal Care: 10.12% Consumer Electronics: 6% Foodstuff: 13%
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China (Export) U.S. (Import) E.U. (Import)
94.92% in Cargo by Sea 8% in Cargo 67.03% in Cargo by Sea
China (Export) U.S. (Import) E.U. (Import)
Ex Officio: 99.78%
By Application: 0.02%
Data Not Available Ex Officio: 2%
By Application: 98%
1. Top 3 Categories of Seized Goods
2. Seized Goods Transported Through Cargo
3. Percentage Ex Officio and By Application actions
24. Take-Away for Anti-Counterfeiting
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Conduct an audit to confirm if counterfeiting is a problem for business.
Register trademarks and record with China Customs if needed.
Strategize anti-counterfeiting actions based on business goals and budget.
Understand difference of enforcement actions in China.
Focus enforcement actions in key markets.
Consider administrative actions before civil litigation in China.
Customs actions: be responsive, train and global focus.
25. Trademark Squatting - Overview
• First-to-File and Broad Coverage
- Case Study 3: Full Blown Fight Against Counterfeiter
• Chinese Character Marks
- Case Study 4: Battle over Chinese House Mark
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26. Avoid Squatting: First-to-File and Broad Coverage
• First-to-file = race to file to obtain priority;
• New marks should be treated as confidential prior to filings on a global scale;
• File for all related goods and services, including in different classes, expanding coverage
as broad as possible;
• Evidence of use and intent to use are not required for registration;
• Use of an unregistered or pending mark can put the mark under great risk of trademark
squatting;
• Use of registered marks out of the scope of registration raise risks of trademark squatting
of unregistered goods and services.
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27. Case Study 3: Full Blown Fight Against Counterfeiter
Client registered
Chinese house
mark on hair
clippers in Class 8.
Squatter filed Client's
Chinese mark on shearing
machines in Class 7 and
started producing
counterfeits using both
English and Chinese house
marks.
Client filed
opposition against
Squatter's mark
but lost three
rounds of appeals.
Squatter received
registration
certificate issued by
mistake and took
enforcement actions
against Client.
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29. Actions (1/2) - Defense
Protecting Client's business from interruption-
• Obtained an invalidation of the wrongfully issued trademark registration certificate;
• Persuaded administrative authorities to refuse Squatter's "enforcement" requests based
on the invalidation;
• Provided training to business partners in responding to Squatter's harassment; and
• Arranged for a point of contact for legal support in case of Squatters' harassment actions.
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30. Actions (2/2) - Attack
Forcing Squatter to stop counterfeiting and unfair competition-
• Successfully obtained a re-trial for opposition before People's Supreme Court (SPC), the
highest court of China: only 12% of cases petitioned to SPC are granted with re-trial every
year;
• Conducted a successful administrative raid at a trade show while opposition was pending;
• Conducted several rounds of evidence preservation and file a civil litigation based on
trademark infringement and unfair competition;
• Negotiated with trade show organizers to curb Squatter's requests for exhibiting
counterfeits; and
• Suggested to record registrations with China Customs to detain export counterfeits
exported to India.
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31. Avoid Squatting: Chinese Character Mark
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• Necessary whenever a mark is difficult for target consumers in China to pronounce
and memorize.
Language barriers; and
Risks of letting third parties choosing Chinese mark for brand owners.
• Benefits to Proactively Adopting and Protecting a Chinese Character Mark:
Ensure marketing value of the mark; and
Avoid high risks of trademark squatting.
33. Nailed It!
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赛百味
Sound: Sai Bai Wei
Meaning: Superior to hundreds of flavors
可口可乐
Sound: Ke Kou Ke Le
Meaning: Tasteful and joyful
34. Case Study 4: Battle over Chinese House Mark
Client's medicated
lip balms are sold in
China under a
Chinese mark used
by a distributor.
Squatter registered
Client's Chinese mark on
lip balms in Class 3,
produced counterfeits
and aggressively enforced
against Client.
Client negotiated
a new distributor
and the Chinese
mark in question
was valuable and
crucial.
Squatter asked for
an astronomic price
for selling the mark.
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35. Actions (1/2)
• Searched for an alternative route for registration and identified two items in class 5;
• Ensure Client can sell relevant medicated balms in Class 5 without fulfilling additional
legal obligations in mainland China;
• Filed Client's Chinese house mark in class 5 on -
Lip balms for medical purposes, modified from standard item "balms for medical
purposes"
Lip ointments for pharmaceutical purposes, modified from standard item "ointments
for pharmaceutical purposes".
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36. Actions (2/2)
• Successfully persuaded China Trademark Office to accept the modified goods;
• Successfully obtained registrations for Client's Chinese house mark in Class 5, which
serves as defense against Squatter's harassment; and
• Proposed several strategies to neutralize Squatter's registration.
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37. Evaluate Impact of Trademark Squatting On A Global Level
To decide whether and how to tackle a trademark squatter in China, consider the
following elements:
• Whether China is or will be a market;
• How important the mark in questions is, e.g., house mark, Chinese mark, or secondary
mark;
• Whether consumers in other key markets will be confused;
• Whether it is possible to re-brand and what is the cost;
• Whether the Trademark Squatter is an extortionist or counterfeiter; and
• Whether export of counterfeits from other counterfeiters becomes a serious issue
(Note: a trademark registration is required to request China Customs to detain
counterfeits).
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38. Take-Away For Avoiding Trademark Squatting
• Don't walk, run to file!
• Ensure the broadest coverage for trademark applications in China.
• Consider adopting a Chinese character mark if doing business in Chinese speaking
areas.
• Be creative in defending from and enforcing against trademark squatters.
• Trademark squatters may become competitors if not careful!
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39. Think Ahead of The Game
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Anti-counterfeiting and brand protection is not a sprint, but a marathon.
Take Proactive Measures to Protect Goodwill and Integrity of Your Brand:
Audit and file gap-filling trademark applications in key countries every 5 years;
Record trademark registrations with customs in key countries;
Trademark global watch;
Domain global watch;
Routine Monitoring of social media and online marketplaces;
Routine due diligence and compliance check of business partners;
Timely communicate with possible infringer to prevent development of infringement;
Work with marketing team to educate business and the public to respect your trademark rights;
and
Join industrial organizations to keep up with latest news of counterfeits and anti-counterfeiting
efforts.